Osama Saeed's blog

21 June 2010

The cuts won't work, they'll just make it worse

This year’s general election showed up a serious ideological difference between the SNP and the other major parties. We were the only ones who went into it opposing the agenda of swingeing cuts in public spending.

Sure, it was hidden behind the grammatically controversial “More Nats, less cuts” slogan. But there was so much more to it than a policy of Scottish exceptionalism. This was apparent in any of the hustings I took part in, which surprised even me at how much to the left we were of Labour, Lib Dem and Tory orthodoxy.

True, there is a significant budget deficit and this should be brought down. For this, it should be recognised what brought it about. It was not a surge in public spending, it was a reduction in the tax take the recession entailed. Economic growth therefore should be the driver to reducing the deficit.

Labour's plan for dealing with the deficit though was proportionally 50% spending cuts, 25% tax increases, and just 25% resting on growth. The Tories since taking office have said their plan rests 80% on spending cuts and 20% on tax rises (no mention of growth from them at all). Both proportions are plucked out of thin air, and both show great lack of confidence in their ability to grow the economy.

With the private sector having stagnated, the major economies rightly employed fiscal stimulus to replace it. The state has a vital role to play, and balancing its books is not the same as tightening the household finances – a childish analogy senior politicians routinely make.

This crisis is the biggest since the crash of 1929, which turned into the Great Depression precisely because of the instinct to cut at the sight of increasing deficits. As we know, it was policies like FDR’s New Deal in the US which hiked spending on essential national infrastructure projects but which boosted the economy, created jobs, helped businesses, and got the tax take up. Cutting may reduce spending on one hand, but also reduces tax revenues and increases spending through higher unemployment payments.

There is plenty that we need built in this country. There is a green energy revolution to unleash.The creaking public transport infrastructure we have that needs an overhaul, is one other obvious example.

Deficit hawks will say that the markets will not put up with this. That is the same credit rating agencies which gave gold star ratings to the rotten produce that created this crisis in the first place. What they will certainly not like is the double-dip recession that current thinking will produce. If they are looking for a credible plan to reduce the deficit, then politicians should put one forward.They should be setting the tone for the markets, not the other way round. All they ever talk about though in the context of deficit reduction is cuts, and never give anywhere near as intricate plans for maximising growth.

This is Labour’s problem in posing now as opposing Tory cuts. They were set to do exactly the same, save for this particular financial year. Alistair Darling said as chancellor that their cuts would be “deeper and tougher” than Thatcher’s. They accepted the market-driven narrative that supposedly necessitated savage cuts, when they needed to show strength and drive a different path.

They could even after it was all done have kept the Tories out with a progressive coalition, but weren’t interested. We now seem to be headed for years of gloom, depression and unrest. The SNP’s election campaign this year will appear more and more important as time goes on.